Hi all
I have a Will which leaves the residue of the estate to a child upon attaining the age of 21. There is no further provision in the Will at all and none to confirm what happens if the child dies before reaching the age of 21.
In this case would the residue revert back to the Testators estate under the Intestacy Rules? Or is there any chance of it passing into the child’s estate?
In the absence of a default clause or gift over, there will be a reversion to the estate and so an intestacy if the child was the sole residuary beneficiary.
The IHT consequences will depend on the age of the child at the date of the deceased’s death.
If he is then under 18 this will be an 18-25 trust and there will be no charge on his death under 18. But if he dies between 18 and 21 there will be: ss. 71D and F.
If the child is over 18 at the death the trust will be an IPDI trust because of s.31 TA 1925 (unless excluded, which seems unlikely) and on death before age 21 there will be a termination charge under s.52. The same result will not follow if he is under 18 at the death but acquires an IIP at 18 and dies between 18 and 21: a s.71F charge occurs.
If the child was a disabled person at the death he will have an IPDI from then: s.89(2).
The residue will be settled property for CGT regardless of the IHT status of the trust. On the child’s death there will be a revaluation to market value without chargeable gain, whether the child died under or over 18 in an 18-25 trust, IPDI or disabled person’s trust: s.72 or 73 TCGA. This is not within the exception for a reverter to disponer in s.73(1)(b); although the settlor is the deceased for s.68A the deceased is not the “disponer” because there is no disposal on death: s.62(1)(b).
Whether s.72 or 73 applies will depend on whether the settlement ends. It may not end, arguably, if the intestacy statutory trusts operate as regards any part the settled property, especially if the PRs are also the trustees. The question also arises for IHT. Are the statutory trusts a new settlement/new settled property or does the original trust continue so that the statutory trusts are in effect regarded as a remainder? This point may be so abstruse that it is not covered by either Manual.
Jack Harper
Sounds like this was not a professionally drafted will and there may be an issue of construction here. If on construction it is a contingent gift, and the contingency fails/has failed, then there will be a partial intestacy. It may be however that, as a gift of residue to a sole beneficiary with no gift over, the gift was intended to be absolute, but made subject to an (ineffective) attempt to delay vesting until age 21. In that case the gift would pass to the residuary beneficiary’s estate.
If the interest is properly interpreted as absolute and the child also dies intestate and unmarried without children it may well be that the destination of the estate will be as it would have been on the parent’s intestacy. If he was married and/or had children the main difference would be the spouse would not benefit in the mother’s intestacy.
Who can benefit on the one view and on the other, and the value of the interest, will surely determine who is going to pay to find the legal answer! If they are different persons but there is no doubt about their respective entitlement on intestacy they can properly reach a compromise of the issue and share the estate as agreed, if all adults with capacity.
Jack Harper